Good day, everyone. And welcome to Merck’s Fourth Quarter and Full Year 2014 Earnings Call. Today’s call is being recorded. At this time, I would like to turn the call over to Joseph Romanelli, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Christy, and good morning, everyone. We’d also like to say good afternoon and good evening to everyone listening outside the United States. Welcome to Merck’s fourth quarter 2014 conference call. Before I turn the call over to Ken, I just want to play out a couple of items. First, you will see that we have items in our GAAP results, such as the acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded those items from our non-GAAP results. There are reconciliation tables available in our press release, so you can get a better understanding of the underlying performance. We have also provided tables to help you understand the sales results in the quarter for the business units, as well as for the products. This could be found in Table 3 of our press release and the reconciliation table, I mentioned earlier, is in Table 2 of the release. During the call, we will be referring to Table 2 for the P&L and Table 3 as it relates to revenue. Second, I would like to remind you that some of the statements we make during today’s call might be considered forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are made based on the current beliefs of Merck’s management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or risk or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements. Our SEC filings, including Item 1A in the 2013 10-K identify certain risk factors and cautionary statements that could cause the company’s actual results to differ materially from those projected in any of our forward-looking statements made this morning. Merck underscores no obligation to publicly update any forward-looking statements and you can see our SEC filings, as well as today’s earnings release on merck.com. So, with that, this morning, I am joined by Ken Frazier, our Chairman and Chief Executive Officer; Adam Schechter, President of Global Human Health; Rob Davis, our Chief Financial Officer; and Dr. Roger Perlmutter, President of Merck Research Labs. So, with that, I'll turn the call over to Ken.

Thanks, Joe. Good morning, everyone, and thank you all for joining the call today. Our performance this quarter is the result of the proactive steps we are taking to further sharpen our commercial and R&D focus, redesign our operating model and reduce our cost base. We are evolving Merck’s operating model and recognition of the evolution underway in healthcare markets across the world and we will continue to focus our resources on those internal and external opportunities that can generate the most value for patients, customers and shareholders. While we made real progress in 2014, you should all know that we are by no means content. Over the past year our greater focus has led to better execution, a point underscored by the effort that led the KEYTRUDA being the first PD-1 inhibitor approved in the United States. Another example of focus execution is restoring JANUVIA’s growth. It is our intention to continue this focus discipline execution especially in areas where we have the greatest opportunities to grow internally. While we are transforming the way Merck operates and executes, our fundamental strategy has remained consistent. Our success and our future will continue to be predicated upon what is long defined Merck, innovating at the intersection of scientific opportunity and global unmet medical need. In short, there is no substitution for innovation, which we believe remains the best path to intrinsic long-term value creation, we intent to stay at the forefront of biopharmaceutical science and innovation. Now turning to our results, I'm pleased that both on an annual and a quarterly basis, excluding exchange, we reported sales growth in diabetes, hospital, acute care and vaccine, as well as in our animal health business. We also delivered on both our quarterly and full year non-GAAP EPS commitments. Our core underlying portfolio continues…

Thank you, Ken. Good morning, everyone. This morning, I will provide you with an overview of the Global Human Health fourth quarter results. We’ll also provide you with some context in the 2015 outlook. My comments will be on a constant currency basis. We finished 2014 with solid performance. Sales reached $9.4 billion in the fourth quarter and they reflected growth in our four core areas of diabetes, hospital acute care, vaccines and oncology. And those are partially offset by hepatitis C market dynamics and product divestitures. If you exclude the divestitures, sales grew 3%. First, I’ll review performance of several key products and then I'll provide an update by region. And I’ll begin with JANUVIA. The JANUVIA franchise reached approximately $1.7 billion in sales and grew 6% in the quarter and 4% for the full year. And our fourth quarter sales in United States grew 5%. Our increased focus on investment enabled us to defend our 75% market share and to grow the DPP-4 class. In our international market, sales grew 6%. Europe and emerging markets continue to grow on strong demand. In Japan, sales declined as a result of DPP-4 class replacing in the competitive environment. We committed to grow JANUVIA in 2014 and our team worked hard to deliver on that commitment. We're entering 2015 with momentum to deliver another year of growth. Next, in hospital and specialty care, sales of ISENTRESS were approximately $420 million in the fourth quarter, a decline of 1%. Internationally, we drove growth in Europe on continued volume increases. Emerging markets sales grew as a result of demand and of tenders. In United States, sales declined due to a tough year-over-year comparison and competitive dynamics. On a full-year basis, ISENTRESS grew 3%. We expect continued competitive pressure in 2015. And we believe…

Thanks, Adam. Good morning everyone. As Ken and Adam shared with you, 2014 was a year of strong execution and solid performance for Merck. From a financial perspective, we are leading a transformation in the business and are on track to achieve our strategic goals while sharpening our focus. From a deal perspective, we executed a significant number of business development deals in 2014. From our divestiture of the Consumer Care business to the acquisitions of Idenix, Cubist and OncoEthix, our deal strategy shows we are focusing our business on our core areas, which we believe will help drive future growth. We are also making steady progress to change the business model and achieve our cost production goals. Consistent with our guidance for 2014, we were successful in lowering our M&A and R&D expenses below 2013 levels. This drove a leverage P&L and is an example of how we’ve changed the way we operate. For shareholders, 2014 was a significant year from a capital allocation perspective. We returned approximately $13 billion to shareholders through the dividend and share repurchases. This was a record year for Merck in terms of returning cash to shareholders and showed our commitment to being operationally focused and shareholder minded. Lastly, we met our guidance targets in 2014. We achieved the top end of our EPS guidance range by delivering $3.49 of earnings. Our performance throughout the year shows that we will manage our business to achieve our financial goals. Now turning to the fourth quarter and as a reminder, my remarks will focus on our non-GAAP financials. Total company revenues were $10.5 billion in the quarter, a decrease of 7% year-over-year, which includes a negative 3 percentage point impact from foreign exchange. This decrease reflects $600 million in lost sales due to the divestitures, including…

Thanks, Rob. The fourth quarter saw increased investment in discovery research, clinical development and in regulatory affairs activities at Merck research laboratories. Turning first to product registrations, in December, we obtained FDA approval for Gardasil 9, a 9-valent Human Papillomavirus vaccine. As previously discussed, this vaccine will permit immunization against more than 90% of HPV strains associated with the development of cervical cancer. Summing over the calendar year, in 2014 we received U.S. approval for more new molecular entities, that is, new drugs and vaccines than in any previous year in the history of Merck & Co. Also during the fourth quarter we submitted our file supporting the registration of Bridion, for which we had previously received the complete response letter. It is our expectation that the FDA will convene an advisory committee of the Bridion file with an action expected in the second quarter of this year. On the development side, we continue to make progress on the evaluation of grazoprevir/elbasvir, together known as our doublet therapy for the treatment of hepatitis C virus infection. Phase III studies for this once daily therapy were fully enrolled during the fourth quarter, which, assuming that these data recapitulate what we have described previously in our Phase II program, should permit FDA filing in the first half of 2015. Results from some of these Phase III studies demonstrating the favorable attributes of our doublet therapy will be presented at the European Liver meetings to be held in Vienna in April. As noted in our press release, last week the U.S. FDA informed us of their intention to resend our breakthrough designation for grazoprevir/elbasvir for the treatment of Genotype 1 HCV infection, based on the availability of newly registered drugs that address this medical need. We intend to discuss this matter with the…

Great. Thank you, Roger. And Christy, I think we are ready to turnover to the Q&A portion of the call and why don’t we go ahead and take our first caller.

[Operator Instructions] And your first question comes from Vamil Diwan with Credit Suisse.

Hi. Thanks so much for taking the questions. Just couple on the hep C breakthrough therapy designation discussed that you have implications on the companies that receive breakthrough therapies, designations for their products. So is there any other color you can provide on the back and forth around this decision? Did you have a sense that it’s coming or just a real surprise to you when it came last week? And then just on the pricing side a lot of investors focus there as well in hep C. Are the dynamics in that market playing out in terms of pricing somewhat of the way you expected? Is it changing in a way how you view the longevity of this market? And then maybe back just throw in along pricing, if there is comments you could give on the PD1 in terms of access and the level of discounting necessary there, even that still has a somewhat similar access as well? Thanks.

Roger.

So Vamil, let me just -- this is Roger, let me just comment with respect to breakthrough designation, we continue to have the source of discussions that we have been having with the agency with regard to our doublet therapy which we are very excited about. Breakthrough designation of course doesn’t affect our filing strategy and the data or the data. We have our Phase III moving along with our program. The agency has invited us to comment on their intent to withdraw breakthrough designation, and we intend to have those discussions with the agency. And we will see where that goes, but meanwhile we are moving forward with our program. And Adam, I think you have some to add.

Hi, Vamil. So with regard to hepatitis C first, the first thing I want to say is that it is still a large market. There is over 3 million patients in U.S. alone and 100 million patients worldwide. So we believe that this is a market that will be sustainable for a long period of time. Whenever there is competitors, there is going to be increased competition in U.S. on pricing and rebates. And although the magnitude maybe discussed, I think the fact that there is competition is not a surprise at all. The good news is as we look at our success in managed care over the years, we’ve had a lot of success across every therapeutic area that we compete within, whether it would be diabetes or cholesterol or HIV, even HCV when we had details in the marketplace. So we still feel good that we will be able to compete in the competitive environment with our very strong managed care capabilities. And if I remind, we have the doublet coming which we are excited about, but we are also excited about the potential of the triplet in the future as well. As you look at KEYTRUDA, so we are very pleased with the market access that we have today and the fact that reimbursement is happening very quickly for the approved indication. We continue to believe that the market is going to reward innovation. Particularly, innovation is going to improve clinical outcomes over the current therapies. And if you look at KEYTRUDA, the key is building a wall of data around that product and we’ve got a very broad clinical program with over 60 studies. And we are looking at KEYTRUDA monotherapy as well as in combination therapies. And we believe as that data comes out, it will continue to reinforce the value proposition that we have for KEYTRUDA. So we are pleased with the initial access and we are going to continue to compete very effectively in that marketplace as well.

Great. Thanks, Vamil. And Christy next caller?

Your next question comes from Tim Anderson with Bernstein.

Thank you. A couple of questions on KEYTRUDA and then on Remicade. On KEYTRUDA, can you give us an updated timing on KEYNOTE-010, which is Phase 3 and lung cancer survival data, Clintrial seems to suggest that could report out later this year. And on that, will there be an interim look at any point at those results? And second KEYTRUDA question, can you comment on how you view the impact of KEYTRUDA from the new Compendia listing that supports the use of both your product and Optivo? In first-line melanoma, it seems like an unexpected win for you guys given the fact that at least to my knowledge you don’t have any first-line melanoma data yet. Yet, NCCN just recently gave you this recommendation? And then on Remicade pricing in Europe in Norway, the product that the biosimilar product looks like it’s coming in at something like a 60% discount. I know that’s a small market, but I’m wondering if you can talk about where you think biosimilar pricing might land in major markets in Europe in 2015?

So Roger, do you want to…

Yeah. So Tim, with respect to KEYNOTE-010, this trial as with the most all of the others is an event driven trial. And so the overall survival results will be looked at as a function of the number of events that occur in order to be adequately powered to see a difference, which we would hope would anticipate would exist. So we can’t really predict what the timing will be, the timing that is in clinicaltrials.gov is our best estimate of what we’re expecting. And we, of course, have a data safety monitoring board, that’s reviewing these data. There always could be changes in terms of what seen and they might call us and want us to look at it, but that’s really the status of the trial as it currently stands. I would just like to say that with respect to melanoma data and the question that Adam will take on, but we do have a considerable amount of data in all lines of therapy in melanoma, which we presented in various different settings. So we have a lot of efficacy data, that’s already available in the first-line setting in naïve patients.

So Tim, I’ll give you some context on KEYTRUDA, then I’ll get directly to your question on NCCN. So we believe there’s about 2,000 patients that are being treated in December. And we believe that virtually all of those patients were treated on the current label. And to give you some perspective on Compendia, if you look at the approval on 2014, NCCN compendium guidelines added KEYTRUDA for melanoma treatment consistent with our label very quickly. But as you mentioned in mid January, NCCN updated the guidelines for melanoma and they broaden the recommendations on melanoma and I’ll give you a sense of what they did. First, there was consensus among NCCN panel that KEYTRUDA and Optivo has a higher response rate and less toxicity, compared to ipilimumab. Second, both drugs are included as options for first-line treatment and included on the list of preferred regimens. So although we promote on label only, it’s clearly a positive for anti-PD-1 class and it’s a positive for the future of cancer treatment. So we'll see how this plays out over the coming months, but we believe obviously, it’s a positive for the class. As you look at Remicade, I think there’s a couple things to think about. First of all, we had continued growth of Simponi, but we had declined in Remicade of 3%. And we are certainly trying to see some impact from the 20% of markets that had availability of biosimilars last year and Norway is one of those. And what we saw in Norway is first of all, it’s been available for over a year. It was launched in October 2013 the biosimilar and I want to comment on the commercial strategy of the competitors, but we have seen this tender at a very sharp discount as you mentioned. But our expectation remains that customers will continue to take a measured approach and how they use biosimilars and especially, for the patients who are well controlled, at least at this early stage as we go into the broader European markets. So therefore, we believe in the broader European markets, we will see significant price decreases from the competition, but that it will impact primarily the new patients coming in. Therefore, we’ll try to hang on to the existing patients for as long as we can. At the same time, there will certain markets like France and Spain that even if you hold a 100% of market share because of reference pricing, we’re going to have a lower price there, no matter what happens in terms of market share. So we’ll be monitoring and discussing that as we get through this year. And the key for us is continuing to have strong growth of Simponi. And as you saw Simponi grew about 40% in the fourth quarter versus prior year fourth quarter, so we are seeing good growth there. I’ll say though that we don't expect the growth of Simponi to offset the decline in Remicade as we’re in 2015.

Thank you.

Okay. Thank you, Tim. And Christy, next caller.

Your next question comes from Marc Goodman with UBS.

Yes. Can you give us a little bit more color on the animal health it seems to have gotten much stronger? Second, can you talk about the FX impacts on the expense side for this year? You mentioned obviously, a lot of color on the topline. And then just update us on where we’re going to see the Phase 3 data for the C. diff product? Thanks.

So Rob, do you want to talk about FX and expense for 2015?

Sure. So as you look at foreign currency in the prepared comments as we mentioned, given what we’ve seen really since September of last year the significant strengthening of U.S. dollar versus pretty much all currencies, we are seeing an impact. And as we said in our prepared comments, we see $0.27 of potential FX impact built into our assumptions. As we look at how this flows through the P&L, we do get some natural hedge ability through our numbers and we are hedging actively in the marketplace, but we can only offset a small percentage of the impact. And in fact, I would call more blunting of impact than ability to mitigate it. As we look at the flow through from sales to EPS, you will see a flow through at a slightly greater rate due to the fact that we do have more expenses in U.S. dollar driven primarily due to our R&D expenses in United States and our headquarter expenses relative to the percentage of our revenue. So that’s all kind of the dynamic of what’s playing through in the numbers you’re seeing. But as I mentioned in the prepared comments, if you exclude FX from an earnings perspective, we actually grew, we’ll be growing from 2014 to 2015.

So on Animal Health, you can see the fourth quarter showed very strong performance on our Animal Health unit and overall 2014 is a very strong year. And the good news is that it is driven by strength across all regions and all species. And in particular, on depending on companion animals, it was really supported as we said by the launch of BRAVECTO which is underway all over the world. And this year, we’re looking forward to mid-single digit growth in 2015. We’ve also said that we will continue to look for opportunities to augment our Animal Health business in ways they create overall value for our shareholders. So we’re very excited by that business. It is performing very well.

It might we worth adding that recall that we’ve now lapped the ZILMAX impacts. So part of what you’re seeing in the strengthening quarter-on-quarter, our fourth quarter this year versus fourth quarter last year is in fact, the fact that ZILMAX is now added at compare.

Great. Okay. Thank you, Mark for the questions and Christy, next caller.

Your next question comes from Seamus Fernandez with Leerink.

Thanks for the question. Can you hear me okay?

Yeah. We hear you Seamus.

Okay. Great. So just first off, I wanted to get a little bit of color on the tax rate and the significant drop in the tax rate. Rob, can you discuss a little color on what the changes are there particularly, in the context of that no R&D credit actually be incorporated into that number? And then the second question is for Roger. Roger, can you help me understand a little bit more the differentiation about -- between the test and the Biomarker -- the potential availability of Biomarker competitor just received break through designation on the basis of PD-L1 status. So I’m just wondering will Merck or would you expect Merck to have their diagnostics available as a Dako diagnostics available within the context of the lung cancer filing? And then also would it be available at launch. I think there is a lot of confusion amongst the investors as to the realities of the PD-L1 Biomarker test? Thanks.

Okay. So Rob.

Yeah. So good morning. I’ll answer the first question around tax. There are really several things contributing to the decrease on our tax rate year-over-year. First, the divestiture of the consumer care business is expected to benefit our 2015 tax rate given the fact that the majority of the U.S. consumer care business was a U.S. based business and that more than offsets the fact that there is a slight impact and then from a negative perspective to the acquisition of Cubist. So net of acquisitions and divestitures, we actually see a benefit flowing through our tax rate. And then outside of these factors, we do have favorable product in geographic mix year-on-year. We have some time items. I don’t want to get into them, but flowing through. And then probably most importantly, we have and continue to look for specific strategies to actively manage the tax rate going forward. And well I don’t want to give longer term guidance clearly that is something we are very focused on. And we’ll continue to see as an important contributor.

Roger.

And Seamus, just on the PD-L1 biomarker. So first with respect to what is actually good for, in non-small cell lung cancer. There is no doubt that there is a correlation between PD-L1 expression and the pretreatment specimens and response rate progression free survival that we measure after treatment. So we will in fact have the Dako associated PD-L1 antibody test for immunohistochemistry available for filing and available for you slip the drug because that is an important aspect of treating patients. On the other hand, it is important to recognize that PD-L1 is not an absolute predictor of responsiveness that is to say that there are PD-L1 negative patients who never less respond to therapy. So the issue will be, how to capture in labeling language the way in which to use this test. It’s not an absolutely predictive biomarker, but it is an important indicator of prognosis with respect to response.

Okay. Great. Thank you, Seamus. And Christy next caller?

Your next question comes from Mark Schoenebaum with Evercore ISI.

Hey guys. Thanks for taking the question. I appreciate all the clarity. Several, but very short, one on JANUVIA item, what -- in the U.S. in 2014, would you mind giving us the volume versus price component particularly curious about price what happened to your net price in 2014? And then on the CETP, Roger, you mentioned that your expectation is that’s going to go to final analysis, I just want to be clear. So you are basically telling us that you just don’t expect that to be stopped early. And any expansion on that corner would we be appreciated? And then on TECOS, if I may you mentioned ADA that you’ll have the data, but should investors expect that topline release before that yes or no? Thanks a lot.

So hi Mark, this is Adam. With the regards to JANUVIA in the U.S., there was some positive impact from price, but it’s mostly from volume. And if you look at TRX volume and you look at whether it’s a current week, or rolling 12 weeks, you are seeing saying anywhere from a 6% to 7% increase for same week or same rolling 12-week time period in the prior year. So a little bit from price, but mostly volume.

Yeah. And Mark, it’s Roger. And on CETP, yes, I think it’s very unlikely that the study would be stopped early. It is important in general to the executive committee of the study I think speaking for those groups that are involved, Oxford and TIMI. They are extremely anxious to have a definitive answer with respect to the question of whether HDL elevation of the kind that you achieve anacetrapib through CETP inhibition, actually has a meaningful active or better affect on cardiovascular outcomes when used in combination with -- when used as a treatment for cardiovascular risk. And keep in mind, again, as you know well, Mark, that anacetrapib lower LDL cholesterol dramatically. So my comments were meant to say that since we know that LDL cholesterol-lowering is itself associated with a favorable outcome, one expects a favorable outcome. The question that’s being asked is, can we do still more through CETP inhibition? I think we'll go to the end trying to find that out. Of course, we are all looking very carefully at the safety, all along the way and that could be a reason to stop the study. But on efficacy, I think it’s very unlikely to stop at an interim. I think it will go to completion. And then with respect to TECOS, we’d just have to see what the data look like. The study is being, of course run by Independent Executive Committee, Duke Center is coordinating it. They are going to pull together the data. They believe that they're going to be able to pull that together in time for presentation at the ATA Meetings. And depending on what we see, I mean that will decide how that's announced to you and to the public at large.

Thanks.

Thank Mark. Appreciate it. And, Christy, next caller?

Your next question comes from John Boris with SunTrust.

Yes. Thanks for taking the question. So the first question has to do with some of the commentary, Adam, you gave on Remicade. I think you've indicated it. France has been, there has been some reference pricing. What is your -- across the major European countries, what’s your assumption about the price compression across the major European countries in your plan for that franchise? And then the second question on your HIV strategy, Roger, ISENTRESS and maybe in combinations, secured approval on it. Can you talk about doravirine product profile, timing for completion of phase 3 trials and how that fits into a more broader combination strategy with the other assets that you have within the HIV portfolio?

Okay. Adam?

Yes. So -- hi, John. So, first one with regard to Remicade and it’s hard to say because we’ve never had a product of this magnitude. We’ve got biosimilar competition in major European markets and it's hard to predict based on what happened in the smaller markets as to exactly what will happen in large markets. What we are assuming is that we can maintain a large number of the currently treated patients and we’ll see the most pressure in new patients coming into the markets. The immediate mandatory price reductions, there's really four or five markers where that occurs is simply France, Spain, Austria and Belgium. And those are markets that it’s going to depend on what the biosimilar do in other parts of Europe in terms of competition and what they do discount versus how they try to compete for the business in certain other markets. So what we've assumed is that we keep the majority of patients. There will be some pricing pressure. If you look at the overall franchise, we think that it will decline versus the prior year because the growth in Simponi, which will remain strong, will not offset the pressure that we’ll see on the Remicade and the price erosion. But it’s just too early to know exactly what could happen. We’ve seen discounts so far of approximately 30%, but then you see what happened in Norway, which was more steep than that. So, we’ll have to see where they go and we’ll report over time what we see in the marketplace.

Okay. Roger?

And, John, with respect to HIV strategy, without going into an enormous amount of detail and totality of it, as you know, ISENTRESS is an extremely important platform for therapy and as the data that we described last year, from the advanced studies that demonstrate that moving ISENTRESS to once-daily platform obviously is something that is important to do. MK-1439, Doravirine, is intended ultimately if it reaches its objectives to replace efavirenz which is another platform. And the non-nucleoside reverse transcriptase inhibitor category, what we know is that this is an extremely important aspect of combination therapy. And yet, there are some real concerns about the ability of patients to adhere to efavirenz because of adverse experiences. 1439 has very favorable properties. Doravirine has very favorable properties. And we’re expecting to see, we are within phase 3 now for that study. We are expecting to see our data in the 2016, late 2016 timeframe. And based on what those data show us then we will be in a he position to put that molecule in combination with the other programs that we have including ISENTRESS. So that’s an aspect. But there are many, many aspects of the combination therapy that gives you a sense where we think we are, where we think we are right now.

Thanks.

Okay. Great. Thanks. And Christie, next caller?

Your next question comes from Jami Rubin with Goldman Sachs.

Hi. Thanks for taking the question. This is Jay Olson on behalf of Jami. A couple questions for Roger. The first question is about Hep C from regulatory perspective. With the recent approvals of oral Hep C regimens, does it change the way you plan to run your phase 3 program? And specifically, will you include the new standard of care as an active comparator in your phase 3 studies? And then second, can you update us on the development plans for MK-4166? When should we expect to see clinical data and when should we look for new studies to be posted on clinicaltrials.gov? Thank you.

Okay. First of all, for the Hep C program, our phase 3 studies, the first wave of phase 3 studies that support registration are essentially complete. So those data are being prepared and our expectation is that we are going to be able to file the Hep C program in the first half of this year that’s what we’ve said. And so there is really no change to those programs that we can engineer at this point. The studies are done and off course, those studies were studies that we designed, I’m following lots of discussions with the FDA. So that’s kind of where we are with respect to those. And we are looking for having the opportunity to describe those data, two year and the data will be presented in significant part at EASL. With respect to 4166, which others know is our GIRT agonist program, which is one of the combination programs in our immuno-oncology program. It’s in Phase 1 has been since the middle of last year. Data are accruing and we hope to have the opportunity to share those data with you in -- not just in future.

Great. Thank you, Jay. And Christy next calls.

Your next question comes from Colin Bristow of Bank of America.

Good morning and thanks for taking the question. Just a few quick ones, on odanacatib, can you give us an update on the progress towards tool regulatory submission, on the business development front? Can you just give an update on your strategy with respect to therapies of areas of interest and optimal deal size and whether any of this has been impacted at all by the recent high profile pricing headline? And then finally on the animal health business, are there any specific internal reviews scheduled with regard the potential divestiture of this unit or this more of an ongoing fluid price? Thanks.

So with respect to refining the overall portfolio not with respect to animal health specifically, we continue to evaluate our strategy and our opportunity to create greater value for shareholders and for customers. I have said very clearly that, we see animal health as a great business. We are very interested in that business. We’re looking to augment that business. From a business development standpoint, first of all, we do remain committed to business development as a way of augmenting our pipeline with programs that, as Roger said, provide unambiguous promotable advantage and while we have a significant number of deals last year, including Cubist, Idenix and OncoEthix. In 2015, we will also pursue the right kind of deals, which for us are bolt-on opportunities that will either drive our pipeline, which of course, is the most important thing to our future growth or we might pursue additional commercial assets, if we believe that we have the ability in our portfolio to maximize with our reach, our expertise and our fit, what those molecules can do. So I would say we’ll continue to look for value-added bolt-on opportunities and I’ll remind that we believe we have the right balance sheet to continue to do this.

Great. Roger?

And with respect to, Colin, with respect to odanacatib, as we’ve said, as we showed at the last year's meetings, odanacatib has a very impressive affects in terms of reducing the risk vertebral, nonvertebral and hip fractures, and there is a particularly strong effect in reducing the risk of clinical vertebral fractures in women with postmenopausal osteoporosis. The problem in our data set was that there were some inconsistencies with respect to MACE events. And we decided after looking at that and after discussions with FDA that we would re-adjudicate all of those events. So we're in the process of doing that, re-adjudication is going forward. FDA is participated in the design of that process and we’re working through it as soon as those data are complete .We’ll pull it all together and we’ll have the opportunity to file, which we expect to do by the end of the year.

Great. Thank you, Colin, and Colin, congratulations on the arrival of your first baby, your daughter few weeks ago.

Thank you.

Christy, next question?

Your next question comes from Steve Scala with Cowen.

Thank you. First a follow-up on pembrolizumab in lung and the filing around midyear, it would seem that the data available in the PD-1 negative population is too limited to support a filing in that population, I'm wondering if you disagree? Secondly, to clarify on your comments on the REVEAL trial, are you saying that it won't stop because the DSMB wants a definitive answer and not because there won’t be a reduction in the event rate at the interim, so there could be a reduction in the event rate at the interim, but it won't stop because a definitive answers sort? That’s the second question. And then lastly, Glaxo recently released some very strong topline results from their Zoster vaccine? Two questions, if the results hold up and the full data is released what will be your commercial response? And it would seem logical to meet that Merck will do a study of ZOSTAVAX given in a two dose regimen? Are you contemplating that study? Thank you.

So, Roger?

Yeah. So, Steve, with respect to PD-L1 in lung, we actually we have a very large data set, we’ve described through our presentations also on clinicaltrials.gov, more than nearly 600 patients with non-small cell lung cancer, included in that a lot of individuals who have low PD-L1 expression. But let me point out, it is a continued of the PD-1 expression. So the issue really is when you looking at it with our immuno-histochemistry test, what is the cut point that you use. And there are patients who are absolutely completely negative. We can find a single cell seemingly that’s PD-L1 expressing, of course, that's based on a very small biopsy sample, you don't know what would happen if you look to another sample or there could be population of cells that are expressing there. And then there are others which seemingly every cell is expressing and then the vast bulk of individuals who are somewhere in the middle. And so the question is, what is a PD-L1 positive patient, we obviously, haven’t approach to that, so we have develop through series of statistical analysis, but that something that clearly we have to be reviewed with the agency as we go forward. With respect to REVEAL, I am very confident for the reasons that I mentioned that there will be a favorable effect of anacetrapib in terms cardiovascular risk. It has very impressive effects on LDL cholesterol and that should be associated with the lowering risk, but that isn’t the question really that’s addressed in the trial. The trial is trying to address the question of whether HDL elevation known for decades as associated with improve cardiovascular outcomes has meaningful effects. And for this reason the trial is structured in such a way that as its typical for such trials, but its unlikely that DSMB is going to call the study, unless there is just an extraordinary favorable result. So that’s my expectation and…

Yeah. Steve, with regard to ZOSTAVAX, so first, when you think about the GSK product, there is still a lot more we need to learn beyond the limited Phase 3 efficacy data that was available in the press release. So we are looking forward to the data being published and available, so we can learn a lot more about that vaccine. But if you look at ZOSTAVAX specifically, there are lots of attributes that customers really value. First of all, the single dose vaccine has established track record of safety and efficacy in both clinical trials, but also in real world evidence studyings. And we have already distributed over 20 million doses across 25 markets. There is still a lot of unvaccinated patients in the U.S. alone that can benefit from it. And as you can see in the marketplace we have increased our direct-to-consumer advertising. We are doing a lot to try to treat as many patients as possible in the short-term.

To be blunt, we are trying to get patients to originate to get a single dose vaccine. And we think that that is something that we continue to do, getting people to originate twice to get a double shot is probably a little bit more challenging.

Great. Thanks, Steve, and Christy, next caller.

Your next question comes from Tony Butler with Guggenheim Partners.

Yes. Good morning. Thanks very much. I will be brief and it’s around OpEx. Adam, you have made some comments around the reduction in SG&A and some modest increase in R&D? But was SIVEXTRO launching in Europe, ZERBAXA in U.S. and some others. The question is, are you really providing sufficient support to those new launches? Second, likewise, from an R&D perspective, with TECOS indiscernible 2.46] rolling off, the question is, I might have thought much like 2014, R&D expense would be flat to down, yet there up is at more related to increased dollar spend for KEYTRUDA or what? Then third, again, on CTP, anacetrapib, Roger, forgive me if you actually stated this but is your intention to put out a press release will it be at the end of the quarter or part of a quarter call would you state the trial has continued the DSMB met, et cetera, et cetera? Thank you.

Adam?

Hi, Tony. I will start with regard to operational excellence. It first starts off with focus and what you have seen is we have really put our resources behind the four focused areas that I’ve talked about before. And although, total SG&A had come down last, what you saw is we increase our spend in diabetes and we built a oncology business unit to launch KEYTRUDA and we fully allocate resources to there. We look at every launch as a very important opportunity and we intent to fund those launches to be successful and we will cut another areas, but we are not going to cut an areas that are key priority growth areas for us, in particular we think about diabetes, hospital, acute care, vaccines and oncology. But also other launches that are even outside of those areas, we are going to fund those and we are going to resource those for a success. So it really does come down to, where else we reduce expenses and it’s going to be outside of those key growth areas.

So, Roger, do you want to cover on R&D or Rob.

Broadly speaking for R&D recognized magnitude of the clinical trial costs associated with moving forward with the totality of the KEYTRUDA program and all of the other programs that we are pursuing. That said, I believe, firmly, we have delivered what it means and we will do everything we can to prioritized those investments. This is something that Adam and I do together and thinking about how to develop our portfolios and we are quite disciplined about that. We do expect that because of the profound opportunities of KEYTRUDA, there will be an increase in expenses. But we will -- we are going to manage that very carefully. And with respect to anacetrapib, the trial will continue, there will not be a reason to announce that the trial was continuing. If something happens, of course, we will let you know about it. But in general, I think, we should expect that you'll hear about the trial when we obtain the results.

And Tony, this is Rob. I just might add that I do think and agree with Adam, we are adequately investing where we need to invest for new products. I think the fact that we’re growing the R&D spend is more a statement of the success of our programs and our excitement on our pipeline because to Roger’s point, we’re very disciplined. And I think that shows in the fact that overall, we are still expecting to lower OpEx in 2015 versus 2014 versus focus. So it is, I think, a good story of focus and discipline.

Thank you.

Great. Thank you, Tony. And Christy, I think we have time for two more callers.

Sure. Your next question comes from Gregg Gilbert with Deutsche Bank.

Thanks. First, Roger on anacetrapib, can you talk how specifically the study leaders in your cells would attribute benefit to LDL lowering versus HDL raising at the end of the study? Secondly for Adam, do you have any recent market share data on how KEYTRUDA is faring versus Optivo in the label indication? And perhaps, how you’re trying to differentiate your molecule? And how you might try to differentiate in lung? And lastly post IMPROVE-IT, are there any updated plans for the LIPTRUZET product? And are you thinking OTC on ZETIA at all? Thanks.

Okay. On anacetrapib, Gregg, there is no way to assign benefit to any particular mechanism, except to say that there is an awfully good nomogram that correlates LDL cholesterol lowering with the degree of reduction in major cardiovascular events. And that nomogram is supported by all set of studies with different agents now, particularly in line of IMPROVE-IT. So you have a general feel for the magnitude that you're expecting. The question is do you see something that’s above and beyond that. I think that what’s critical in the study of anacetrapib is to get a very, very hard number and to be really comfortable with the magnitude of the treatment effect and we’ll see that when the study completes.

Okay.

And Gregg, with regard to KEYTRUDA, there is really no market share data at this point in time. It still very early but a couple of things to think about. First of all, we noted that in December, we have about 2,000 patients and most of those are -- perhaps majority of those are on the approved indications. So the math, how many patients are out there, we think, we’ve done a very good job in terms of the label indication getting a lot of patients already on KEYTRUDA. But I think the key thing is that this marketplace has room for multiple competitors and this is going to play out over years. It’s not going to play out over days or weeks or months. And as I think about it, I think about this market place almost like the anti-TNFs where you have multiple players, some are strong in one indication and then another could be stronger in the different indication. We’re going to have to see how combination plays out over years. But what we’re doing is we're building our oncology business unit to really maximize the potential of KEYTRUDA over the long term. And Roger, in the past, has talked about the numerous studies that we have underway as monotherapy, the number of cancer types that we’re studying. And we believe that the totality of the data will allow us to really be able to be successful for KEYTRUDA over time. With regard to LIPTRUZET, I’ll broaden it to how do we think about VYTORIN, ZETIA and the overall ZETIA franchise. We have to wait for the information to be in the label in the U.S. before our representatives can begin to promote the product and that hasn’t occurred yet but once it does occur, we’ll actively promote the data into label. We’re having very good comments from cardiologist and physicians about the trial but we are going to wait before we can promote it into label on the U.S. The good news is outside the U.S., the patent in Europe goes past 2016. And in Japan, it goes into 2019. So in other markets around the world, we have a longer time in order for us to actually be successful in introducing the improvement data to physicians in those countries.

Great. Thanks, Greg. And, Christy, our last call?

Sure. Your final question comes from Chris Schott of J.P. Morgan.

Great. Thanks very much. Just a couple quick ones here. First, coming back to HCV, I guess just elaborating a little bit more. Do you see access as a challenge in 2016, given some of the exclusive contracts that are currently being signed by some of your competitors and should we think about another step-down in price for the category as you enter the market? Second one was on KEYTRUDA beyond the lung filing. What’s the next tumor type we should be watching in terms of a potential filing? And then finally, as you adjust to go with the broader bio portfolio at Merck, when could we see additional Merck developed bio agents enter the clinic and what mechanisms are you most excited about when you think about your pre-clinical portfolio? Thanks so much.

Adam?

So, first, with regard to HCV and so we don’t know the exact language in the contracts that competitors have signed. So, I will put that aside not knowing the exact wording the contracts. But in general, we’ve had very-very good success with managed care access across multiple different therapeutic area, multiple different specialty classes where there is intense competitors and we believe that we will be able to get good access once we launch the product. I don’t want to discuss our contracting or pricing strategy but we are going to make sure that we are competitive in the marketplace in order to get access.

And, Chris, with regard to KEYTRUDA filings, as we’ve discussed before beyond melanoma and non-small cell lung cancer. Last year, we had the opportunity to present data from five additional tumor types in which, response rates really suggest that registration enabling studies to proceed and we are pursuing all of those. So that includes, of course head and neck cancer, includes gastric cancer, includes bladder cancer, triple negative breast cancer and Hodgkin's Lymphoma data. And we have quite strong, quite provocative data in all those areas that we’ve had chance to share with you. We’ve initiated studies in many of those cases and depending on upon what those results look like, that would provide the basis potentially for filings going forward. We’ll have a lot more to say about that but those are the areas which are most advanced right now and I’ll look at clinicaltrials.gov. We will reveal that in particular, colorectal, head neck cancer and other cancers. And then with respect to other immuno-oncology assets, of course we have the GITR asset, we’ve already talked about and we’ve discussed LAG-3, which will be coming forward. We are very interested in the set of cell surface molecules that are both stimulatory and antagonistic with respect to immune regulation and we have developed internally derived antibodies against a whole cluster of those. You are going to have a chance of seeing a number of them coming forward in this calendar year.

Okay. Thanks, Roger. Ken?

Okay. Let me just summarize, I think we had a solid 2014, with growth in all of our core areas, EPS at the high end of the range. Importantly, six new product approvals in the United States and that innovation, momentum continues in 2015. We will be filing for lung in mid-2015, our HCV filings in the second half of 2015. We are making steady progress in a number of areas within MRL, and we are going to continue to do business development to develop best external collaborations we can. As it relates to 2015 underlying business, our core business again will be growing and again, I stress that, x for x, we are growing EPS mid single digit in 2015. So the underlying portfolio is performing well and the Merck Research Lab’s performing well. So thank you very much for hanging in there with us, for little bit more than extended call. And look forward to talking to you soon.